Chairman Ben S. Bernanke
At the Bundesbank Lecture, Berlin, Germany
September 11, 2007
Global Imbalances: Recent Developments and Prospects
In a speech given in March 2005 (Bernanke, 2005), I discussed a number of important and
interrelated developments in the global economy, including the substantial expansion of the current
account deficit in the United States, the equally impressive rise in the current account surpluses of
many emerging-market economies, and a worldwide decline in long-term real interest rates. I
argued that these developments could be explained, in part, by the emergence of a
, driven by the transformation of many emerging-market economies--notably, rapidly growing
East Asian economies and oil-producing countries--from net borrowers to large net lenders on
international capital markets. Today I will review those developments and provide an update. I
will also consider policy implications and prospects for the future.
A principal theme of my earlier remarks was that a satisfying explanation of the developments in
the U.S. current account cannot focus on developments within the United States alone. Rather,
understanding these developments and evaluating potential policy responses require a global
perspective. I will continue to take that perspective in my remarks today and will emphasize in
particular how changes in desired saving and investment in any given region, through their effects
on global capital flows, may affect saving, investment, and the external balances of other countries
around the world.
The Origins of the Global Saving Glut, 1996-2004
I will begin by reviewing the origins and development of the global saving glut over the period
1996-2004, as discussed in my earlier speech, and will then turn to more-recent developments.
As is well known, the U.S. current account deficit expanded sharply in the latter part of the 1990s
and the first half of the present decade. In 1996, the U.S. deficit was $125 billion, or 1.6 percent of
U.S. gross domestic product (GDP); by 2004, it had grown to $640 billion, or 5.5 percent of GDP.
National income accounting identities imply that the current account deficit equals the excess of
domestic investment in capital goods, including housing, over domestic saving, including the saving
of households, firms, and governments. The proximate cause of the increase in the U.S. external
deficit was a decline in U.S. saving; between 1996 and 2004, the investment rate in the United
States remained almost unchanged at about 19 percent of GDP, whereas the saving rate declined
from 16-1/2 percent to slightly less than 14 percent of GDP.
Domestic investment not funded by